NASAA Series 65, Uniform Investment Adviser Law ExaminationInvestment Vehicle CharacteristicsMedium
A client, aged 55, is seeking an investment that provides a guaranteed stream of income for life, beginning immediately, regardless of market performance. They are willing to deposit a lump sum. Which of the following products is most appropriate for their needs?
- AEquity-Indexed Annuity (EIA)
- BDeferred Variable Annuity
- CSingle Premium Deferred Annuity (SPDA)
- DImmediate Fixed Annuity
Show answer & explanationAnswer & explanation
Correct answer: D. Immediate Fixed Annuity
An immediate fixed annuity, funded with a lump sum, provides a guaranteed stream of income that starts immediately, meeting all the client's stated requirements for guaranteed, immediate, lifelong income.
Why the other options are wrong
- A. Equity-indexed annuities offer growth potential linked to an index but do not provide a guaranteed immediate income stream regardless of market performance.
- B. Deferred variable annuities have an accumulation phase and market-linked growth, not immediate guaranteed income.
- C. A Single Premium Deferred Annuity (SPDA) defers income payments to a future date, not immediately.
Immediate Fixed Annuity
An insurance contract that provides a series of guaranteed, fixed payments that begin almost immediately after a lump-sum premium is paid.
- Income payments start within one year (often 30 days) of premium payment.
- Payments are fixed and guaranteed, regardless of market performance.
- Suitable for clients needing immediate, predictable income.
- Often used for retirement income planning.
Memory trick: Annuity choices: Immediate or Deferred, Fixed or Variable, Indexed for a twist.